The President’s Working Group (PWG), which includes the heads of the Treasury, Federal Reserve and Securities and Exchange Commission (SEC), met Thursday to discuss stablecoins. According to the administration, talks on Capitol Hill regarding the regulation of cryptocurrencies are heating up, and there are aspirations to conclude it this year.
Last year, the PWG recommended that only banks be allowed to issue stablecoins because they are subject to stricter oversight. At this meeting, the PWG opened up the idea of allowing non-banks to issue US dollar-pegged coins as part of its regulatory proposals.
Last week, the Basel Committee put forward proposals that change the two categories that cryptocurrencies fall into.
The first category of cryptocurrencies are those that already fall under the existing Basel framework. This category has undergone only minor changes.
The second category, which is unsecured cryptocurrencies and stablecoins, now falls under a much more conservative regulatory framework, especially when it comes to allocating capital to cover risks.
EU policymakers also made progress on new anti-money laundering (AML) rules and a proposal on markets in crypto assets (MiCA) last week.
On Wednesday, policymakers announced the new AML rule, which states that parties to any transaction between digital wallet providers will need to identify a customer’s identity, even for the smallest transactions.
Regulators also agreed on the components of the MiCA proposal, which would require cryptocurrency providers to be authorized to operate in the EU. The proposal also states that stablecoin issuers would be controlled by the European Banking Authority (EBA).
The Financial Conduct Authority (FCA) last week released new data regarding the approval and regulation of crypto firms to operate in the UK. As of January 2021, cryptocurrency-related companies must apply for FCA approval to operate in the country. A year later, FCA data showed that 88% of applications were rejected. Out of 250 applications, only 30 were approved.
Most of the rejections were due to strict regulatory guidelines, particularly the AML required by the FCA. Cryptocurrencies are struggling to gain credibility and prove the effectiveness of their security measures. One area that crypto firms are encouraged to focus on is customer identification.
Regulators are trying to rein in a cryptospace reminiscent of the Wild West era. But the recent crash in the crypto markets has prompted policymakers to take action. As they finally take steps toward regulation, they should consider working together globally to strengthen precautions on vulnerable aspects such as AML and customer verification.